Considering a charitable donation? Help your favorite charities and lower your Gross Adjusted Income on your tax forms at the same time!
If you have established either a Traditional IRA or a Roth IRA as a part of your retirement plan, you should understand the tax advantages and consequences of distributions.
The funds in a Traditional IRA were made with tax-deferred monies, so they have never been taxed. The year that you reach the age of 73 (since 2023 the new IRS age of mandatory IRA distribution) you are required to withdraw money from your tax-deferred account/s each year as a Required Minimum Distribution (RMD). The IRS has a formula for RMDs which uses actuary tables, your age, and the amount of money in your IRA account/s on December 31st of the previous year, to calculate the RMD that MUST be made. The eventual aim is to distribute all those pre-tax IRA funds before your death.
You can take your yearly RMD out of one account, or take bits from each account, as long as you withdraw the required minimum each year. AARP has an RMD calculator where you can see what is involved.
A Qualified Charitable Donation QCD is at least one way to shelter some of those RMD withdrawals from tax and also help your favorite charity. This QCD tax break was made permanent in 2015. If you are 70 and ½ years old (the previous age for RMDs), you can voluntarily make charitable distributions directly to a qualified charity and reduce your Adjusted Gross Income by that amount.
If you are 73 or older, you must take the required minimum distributions (RMDs) from your traditional IRAs. You can avoid paying income taxes on all or a portion those distributions, and effectively lower your Adjusted Gross Income (AGI). Have your IRA Trustee make a required distribution directly to a qualified 501(c)(3) organization in lieu of your usual yearly contribution. When you arrange for the distribution to charity, be sure that the tax is not deducted from the donation. These QCD donations are exempt from Federal tax and most state tax.
When you reach age 73 you must take your first Required Minimum Distribution either by December 31 in the year you reach age 73, or you can defer it until April 1 of the following year. You may take your RMD amount as one lump sum at any point during the year or as multiple withdrawals throughout the year, provided that the total withdrawn by the end of the year is at least the required amount. You are always allowed to withdraw more than the RMD amount.
Your QCD transfer must be reported to the IRS. Your IRA trustee must use IRS form 1099-R to report the Qualified Charitable Donation (QCD) on an account owner’s annual tax return. The IRA trustee, also called a custodian, is the institution that administers your IRA.
The IRA owner should also keep records of the direct charitable donation date, the account from which the donation came, the amount that was given, and the charity that received the donation.
Distributions must be made by the IRA trustee directly to the charity, not to the owner or a beneficiary of the IRA. All distribution checks must be made payable to the charity, or they will be considered by the IRS as taxable distributions.
At tax time report the total IRA distribution on line 4a of your 1040 and on line 4b report any part of the distribution that you received. If all of the distribution was a QCD, then report $0 QCD on line 4b.
To validate the deduction, you will also need a receipt from the charity stating that the donor received no goods or services in exchange for the contribution. Otherwise, the amount of the donation is reduced by the value of any goods or services received in exchange, and that portion of the donation will be taxable. Be aware that you cannot also claim the charitable donation as a tax deduction on your income taxes.
While there are other retirement accounts that also impose Required Minimum Distributions, the Traditional tax-deferred IRA is the only retirement account from which you can transfer QCD of up to $108,000 (in 2025) to charity tax-free each year.
Roth IRA contributions were made with money that has already been taxed. If you are 59 ½ years old and have had your Roth IRA for five years, any money that you withdraw is tax free and penalty free to the owner of the Roth IRA. If you have not had your Roth IRA for five years and/or have not yet reached age 59 ½, there will be taxes and penalties for the withdrawal. There are some special exceptions to those taxes and penalties if you use the funds for medical, home purchase, or education expenses. The IRS does not require distribution of these funds, so there is no RMD (required minimum distribution) of Roth IRA funds unless you inherited the Roth account.
If you don’t need to use this Roth IRA money for your retirement expenses, you can leave your Roth account alone and let your contributions and earnings continue to grow. You can leave your Roth IRA to a beneficiary or multiple beneficiaries, tax-free and avoiding probate. The beneficiary of your Roth IRA account may have to withdraw the funds in ten years, depending on the date of the account holder’s death. This makes the Roth IRA a fantastic wealth-transfer strategy, or an alternative to life insurance for your final expenses.
As part of your estate planning, you can also list 501(c)3 organizations as full or partial beneficiaries to inherit either your Traditional or Roth IRAs, possibly saving your heirs income and/or estate tax.
Tax laws are complicated and changeable. Before making any financial decisions, you should consult with your tax-deferred account trustee, and financial or tax professional, for more information on these distributions to charities and other methods of reducing your retirement funds taxes.
Be aware that it may take several weeks to complete the QCD charitable donation process, so do not wait until the last minute to get the process started.
If you would like to distribute money from your tax-deferred IRA to Poolesville Seniors, you may need this information:
NAME: Poolesville Area Senior Center Inc.
ADDRESS: P.O. Box 264, Poolesville, MD 20837
Tax ID: 81-2272507